At a time where pharma, financial, and information technology (IT) stocks leading the way amid an overall bullish rise in overseas markets, the brokerage firm ICICI Direct is bullish on the shares of Tech Mahindra. The brokerage has set a target price of Rs. 2150 for the stock, which it expects to reach in 12 months from its current market price of Rs. 1785, resulting in a 20 percent growth.
The brokerage’s take on Tech Mahindra
ICICI Direct has noted in its research report that "TechM has grown organically & inorganically (dollar revenue CAGR of 5.6% over the past five years). TechM is rapidly building upscale and momentum through its focus on large deals. The company won US$3 bn of net new deal wins in LTM. Top four verticals viz. CME (Telecom), BFSI, technology & manufacturing, which contributes 85%+ revenues, growing at double digits consistently on a YoY basis."
According to the brokerage "The company has been focusing on margin improvement as EBIT margins have improved 260 bps in FY21 vs. FY20. TechM also indicated that margin trajectory would continue to improve, going forward on elevated freshers hiring, efforts mix towards offshoring, yield management, portfolio synergy. DSO has improved from 107 days in Q1FY21 to 92 days in Q2FY22. The company returned 64% of FCF generated over the last three years."
Key triggers for future price performance of Tech Mahindra according to the brokerage
- Healthy deal wins, traction in communication segment led by legacy modernisation, 5G, customer care, automation, network and cloud to drive revenues.
- Pruning off low return geographies, acceleration in Europe and improving demand from lift & shift deals to drive 12.1%CAGR growth in FY21-24E.
- A 180 bps improvement in margins over FY21-24E led by higher offshoring, synergies in portfolio companies, automation & operating leverage.
Buy Tech Mahindra Says ICICI Direct
The brokerage has claimed that "TechM's share price has grown by ~4.4x over the past five years (from ~Rs 405 in December 2016 to ~Rs 1785 levels in December 2021). We remain positive on the stock and maintain a BUY rating. We roll over valuations to FY24E and value Tech M at Rs 2150 i.e. 25x P/E on FY24E EPS."
The stock has been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.